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Research and Analysis

WORDS OF INVESTING WISDOM

Research and Analysis THE RESEARCH PROCESS

Before I even look at a financial statement, I try to find out as much as I can about the history of the company, to understand how it has arrived at its current predicament. (If we’re looking at it, it’s usually a predicament.) I’m trying to find evidence of similar issues in the past and what happened, to help judge whether current problems are controllable and rectifiable. Murray Stahl, 11.21.07

One of the first questions we ask about a possible investment is “Why is it mispriced?” If you don’t have a reason, there’s a good chance it isn’t really mispriced. Jeffrey Tannenbaum, 7.31.07

Peter Lynch’s greatest influence, which still pervades Fidelity, is that you pick up the phone and call companies. At the end of the day, if you haven’t spoken to a few companies in existing positions or on new ideas, you go home a failure. That’s a good discipline – you should spend your day talking to operators, not to Wall Street. Jeffrey Ubben, 1.31.06

One thing we try to do is find the “guru.” Getting to the truth can really be accelerated by finding the handful of folks who truly understand a business or industry. Jeffrey Tannenbaum, 7.31.07

Julian Robertson was always adamant about seeking out the opposite point of view and then being completely honest with yourself in deciding whether your analysis overrides that. That’s something we try to practice every day. Robert Williamson, 8.31.08

If we’ve spent time with a Wall Street analyst to understand why he or she disagrees with our opinion on a company, that will generally make us more confident when we ultimately make a buy decision. It’s not that we’re smart and analysts aren’t, but usually that they operate with a much shorter time horizon. Christopher Grisanti, 10.31.07

We spend time early in our research process speaking with competitors, the one group with a vested interest in telling us why our thesis is wrong. I’d much rather hear why our thesis might be wrong at this point than for the market to tell us after we own the stock. Boykin Curry, 3.31.08

It’s very common to drown in the details or be attracted to complexity, but what’s most important to me is to know what three, four or five major characteristics of the business really matter. I see my job primarily as asking the right questions and focusing the analysis in order to make a decision. Jean-Marie Eveillard, 5.30.08

One lesson is how important it is to get out there are talk to people. If you spend all your time with your models and spreadsheets, you’re likely to miss something important. You need to understand how the economics work for the people who are making the actual decisions and when you come across something you didn’t know that has broad application, it can be very useful. Clyde McGregor, 4.30.08

We have a disciplined process, but it has to be open to serendipity – often it’s the footnote in the trade journal where you see something interesting that eventually becomes an idea. Shawn Kravetz, 12.30.05

“Looks like another case of media overload sir.” Winter 2008

There’s a virtuous cycle when people have to defend challenges to their ideas. Any gaps in thinking or analysis become clear pretty quickly when smart people ask good, logical questions. You can’t be a good value investor without being an independent thinker – you’re seeing valuations that the market is not appreciating. But it’s critical that you understand why the market isn’t seeing the value you do. The back and forth that goes on in the investment process helps you get at that. Joel Greenblatt, 10.31.06

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Our research process brings us down to 50 or so companies about Value Investor Insight 15

Words of Investing Wisdom  

Greatest Hits” collection of investing insight from Value Investor Insight

Words of Investing Wisdom  

Greatest Hits” collection of investing insight from Value Investor Insight

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